5 Steps to a Secure Retirement

If you’re like many Americans whose retirement savings took a major hit during the market meltdown a few years ago, you’re probably wondering if you’ll ever be able to retire. The eye-popping stock market drop in early August and the downgrade of the U.S. credit rating no doubt add to your jitters. Or maybe investment performance isn’t your major worry. A spate of unemployment or depressed home values can make yesterday’s vision of retirement seem like an im­possible dream.

SEE ALSO: A Strategy for a Lifetime of Income

Don’t be discouraged: Recent statistics on recovering 401(k) and IRA balances suggest that many savers are already back on track. Plus, “Americans have proved
themselves to be both resilient and resourceful,” says Jay Wintrob, president of SunAmerica Financial Group, which recently released its “Retirement Re-Set” study. More than 80% of respondents to the survey said they learned important lessons in the past several years. “They are course-correcting—intending to work longer, save more, spend less and adjust their lifestyle expectations,” Wintrob says.

Laraine Schigotzki is a classic example. With successful careers in commercial real estate, property management and corporate sales, Schigotzki, 46, was surprised when she became a victim of a faltering economy. “I never thought I’d get laid off, but now I look at it as a blessing,” she says. After losing her job in 2008, Schigotzki enrolled in a U.S. Department of Labor retraining program to become a licensed skin-care specialist and went on to become certified as a holistic health professional. In 2010, she opened To Your Health Holistic Spa and Wellness Center, in Brick, N.J., where she offers organic skin and body treatments, health and nutritional counseling, and yoga classes.

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Schigotzki’s retirement savings are on hold while she builds her business, and she knows she has a lot of catching up to do. But she’s banking on her new business, rather than relying on the stock market alone, to fund her retirement. “I am optimistic, and I’m not stressing about my future finances,” she says. “I am putting my heart and soul into this, and I know I’ll come out on top.”

Nancy and Al Guido hoped to retire to their hometown of Chicago after living in Dayton, Ohio, for 17 years. But the collapse of both their investments and their home’s value in 2008—a year before their planned retirement date—blew away their plans to buy a house in the Windy City. They didn’t let their initial disappointment stop them, however. They turned market forces into an advantage by shifting their home search to low-cost Alabama, where they scooped up a beautiful lakefront home near Birmingham at a bargain price. “We couldn’t have afforded this house a few years earlier,” says Al, 62.

The past few years have demonstrated that being flex­ible like the Guidos is an essential ingredient in retirement planning during these uncertain times. Follow our five-step guide to make the new normal work for you.

Step 1 | DO A REALITY CHECK

The main question on everyone’s mind is, Will I have enough money to retire? More than half of those who participate in an employer-based retirement plan say that they have never taken the time to estimate how much they need to save for retirement. If you don’t have a savings target in mind, it’s tough to determine whether you are on track, says financial planner Philip Lubinski, head of the Strategic Distribution Institute, in Denver. Figure out your target number and whether you’re saving enough to reach it by the time you want to retire. To help you do that, check out our interactive tool at kiplinger.com/links/retirementcalculator.

“Some may be assuming they are off-track, when in fact, they aren’t—or not as much as they think,” says Lubinski. The answer to the burning question of Will I have enough? is determined by several factors, including when you plan to retire, how much income you need from your savings, how many years you’ll need that income and the rate of return you can expect to achieve on your investments.

If you discover a shortfall between the amount you need to save and the amount your current account balance and continued savings will be worth by your target retirement date, then you’ll have to make some tough choices. You could save more, work longer, chase higher returns or plan to throttle back on your retirement lifestyle—something most people hope to avoid.

“Americans are recalibrating their retirement dreams,” says Carrie Schwab-Pomerantz, president of the Charles Schwab Foundation, which promotes financial literacy. “They don’t want to buy a winery when they retire. They just want to keep living the life they’ve been living.” J. Graydon Coghlan, a financial planner in San Diego, has observed a similar rethinking of retirement goals among his clients. “Instead of buying a second home, I see a lot of people fixing up their existing home to make it their retirement dream house and then just renting a place for a week or two in the desert or the mountains,” says Coghlan.

Step 2 | PLAY CATCH-UP

It’s been a volatile decade for the stock market, but investment returns are not solely to blame for the size of your retirement account. The main driver of account balances over time is your contribution rate. Investment returns, while important, have a less significant impact over the long term. For guidelines on how you should allocate your retirement savings at various ages, see the graphs below.

Ideally, you should aim to contribute 15% of your gross earnings to your retirement savings—including any employer matching contributions. The goal is to replace about half of your current salary, adjusted for inflation, during a retirement that could last 30 years or more. You’ll probably replace another 30% or more of your current income with money from other sources, such as Social Security, a pension or part-time work, bringing you closer to 80% of pre­retirement income—generally the amount recommended to maintain a comfortable retirement.

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